The Obama Campaign's $8 Billion Taxpayer-Funded Medicare Slush Fund

There has justly been a ton of coverage of the new report from the U.S. Government Accountability Office that shows that the Obama administration is spending over $8 billion to postpone—until after the election—Obamacare’s cuts to the market-oriented Medicare Advantage program. What the coverage hasn’t emphasized, however, is that this development opens up a new expansion of executive-branch power: the ability to spend billions of dollars on politically-favored constituents, without the consent of Congress.

Astute observers, both right and left, long-ago noticed the emergence of this politically-motivated postponement of Obamacare’s cuts to Medicare Advantage. Boston University economist Steve Pizer described it as a “giveaway” back in 2010 when the program was first announced. “When is a quality bonus not for quality?” he asked, drily. “When everybody gets it…the potential for hidden mischief is worrisome.” Barclays Capital managed-care analyst Joshua Raskin was even more direct: “It’s only been eight days since the [2010] election, but the rollback of Medicare Advantage cuts got its first step forward.”

Yesterday’s report from the GAO, which was requested by Sen. Orrin Hatch (R., Utah), definitively slams the administration’s spin that the HHS “demonstration project” for Medicare Advantage is a radical departure from traditional federal behavior. The administration’s Medicare Advantage slush fund “is larger than “the estimated budgetary impact of all other Medicare demonstrations conducted since 1995 combined,” writes James Cosgrove, health care director at the GAO.

Furthermore, because the program is baldly political rather than scientific, “design features that are inconsistent with its [claimed] research goal make it unlikely that the demonstration will produce meaningful results…the Secretary of HHS should cancel the [program] and allow the…system established by PPACA to take effect.”

Traditionally, these Medicare demonstration programs are designed to have close-to-zero impact on the deficit, because, under Article I of the Constitution, only Congress has the authority to spend taxpayers’ money, to “pay the Debts and provide for the common Defence and general Welfare of the United States.”

The Obama administration has found a creative way around this antiquated notion, by taking advantage of the loophole provided by Medicare “demonstration projects.” Under the Medicare law, the U.S. Department of Health and Human Services is allowed to conduct these projects in order to test out reforms to the program. Projects are supposed to be scientifically designed, with a control group, so as to be able to demonstrate whether the new way of doing things is more cost-effective than the old way. These demonstrations can’t be broadly applied to the entirety of Medicare, however, without Congressional approval.

Obamacare sought to fund its dramatic expansion of government-sponsored health insurance by making cuts to the Medicare Advantage program, because on a per-beneficiary basis, Medicare Advantage plans are more expensive. “I believe in competition,” Obama's former budget chief Peter Orszag said in 2009, as Peter Suderman notes. “I don’t believe in paying $1.30 to get a dollar.” (Medicare Advantage beneficiaries, it should be pointed out, typically gain a richer package of benefits than do those on traditional Medicare.) Plus, the Left doesn’t believe that private insurers have a role in the health-care system. It would be a win-win: cut out the extra payments to MA insurers, making it difficult for them to compete with traditional Medicare, and fund the coverage expansion with the savings.

There’s only one problem: Medicare Advantage is quite popular. The program has dramatically grown since its inception in 1982, and now covers more than a quarter of all retirees. Medicare Advantage is especially popular in large swing states; Medicare Advantage covers 39 percent of retirees in Pennsylvania, 36 percent in Ohio, and 32 percent in Florida. (Note the dark blue-shaded states in the map below.)

“Aha!” said HHS Secretary Kathleen Sebelius, or someone who works for her. “We can avoid riling up seniors in swing states by sending money their way—and we don’t need Congress’ approval, because our ‘demonstration project’ only affects a targeted subpopulation of Medicare beneficiaries.” Unless Congress changes the Medicare law to restrain HHS’ authority, HHS can create these giveaways at will.

The Obama-Biden 2012 campaign has sought to raise $1 billion for its fall contest with Mitt Romney. But that fundraising goal involves the hard work of persuading donors to hand over their own money. Isn’t it great that the campaign can spend another $8 billion without asking anyone else for permission?

UPDATE 1: Jeff Anderson has some important insights on the slush fund over at the Weekly Standard:

But the administration didn’t stop there. Instead, it launched an $8.35 billion “demonstration project” to postpone the vast majority of Obamacare’s Medicare Advantage cuts until after what Obama likes to call his “last election.” In truth, this isn’t really a demonstration project at all. It’s something closer to the opposite: an attempt to keep Obamacare’s effects from being demonstrated until it’s too late for voters to respond...

So how much is $8.35 billion, anyway? It’s more than 40 times the $197 million that Obama had raised for his reelection bid as of April 1. It’s more than 90 times the amount that he and Mitt Romney are each eligible to receive in general election matching funds. In health care terms, it’s more than the combined annual profits of the nation’s two largest and most profitable health insurance companies. In other words, $8.35 billion is real money—real taxpayer money.

Moreover, it’s real money that’s quite possibly being spent illegally. After all, a president isn’t generally thought to possess the power to reallocate Americans’ resources to shore up his political vulnerabilities. In defense of its actions, the administration is relying on a 1967 law that says the HHS secretary can spend money without specific congressional approval on “experiments” aimed at improving the execution of current law. Obama’s $8.35 billion allocation, however, isn’t aimed at improving the execution of current law. It’s aimed at delaying the execution of current law and thereby masking the effects of that law until after Obama’s reelection bid. The only “experiment” the administration is conducting is whether it can pull the wool over seniors’ eyes until the election is over...

As Ben Sasse, HHS’s assistant secretary for planning and evaluation until early 2009 and now the president of Midland University, says, “If a presidential administration can simply make up the authority to make law and give itself the power of the purse to implement its new law—which not only isn’t designed to make existing law work but is actually against the purpose of existing law—why do we need a Congress?” Sasse adds, “In scope and intention, this is something completely new, and if it’s allowed to establish precedent, the only limit on what future administrations could spend money on, or how much they could unilaterally spend, would be their own electoral calculations about what they could get away with.”

UPDATE 2: John Fund of National Reviewupdates us on the House Oversight Committee's investigation of the Medicare Advantage slush fund.